Following our article on the new Geo-blocking Regulation and its significance for cross-border e-commerce, Felix Meurer, lawyer, presents the details of the EU Regulation in a guest article. Online retailers watch out!
Since 3 December 2018, the EU Regulation addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market (2018/302) – in short: Geo-blocking Regulation – has been in force.
With the introduction of the Geo-blocking Regulation, the EU wants to take a further step towards improving the Digital Single Market. The aim of the Geo-blocking Regulation is to promote cross-border trade and to prevent customers from other EU countries from shopping under lesser conditions or from being completely excluded from a retailer’s trade.
The relevance of the Geo-blocking Regulation for online shop operators is high, as it applies directly to each of the 28 EU member states and does not require implementation by the respective national legislator. In particular, the Geo-blocking Regulation has three main areas of regulation: Geo-blocking itself is prohibited (Art. 3). This means blocking or restricting access for customers from other EU countries. Customers from other EU countries should be able to shop under the same conditions as customers from the retailer’s country (Art. 4). In addition, businesses may not discriminate when it comes to payment terms (Art. 5).
To whom and what does the Geo-blocking Regulation apply?
The Geo-blocking Regulation applies in principle to all cross-border transactions. It does not expressly cover domestic situations, i.e. transactions which occur exclusively in the territory of a single member state (Art. 2 para. 2). In general, the scope of application of the Geo-blocking Regulation covers the relationship “customer – provider”. The Geo-blocking Regulation applies both to private customers and corporate customers if the latter purchase goods or services as end customers. The Geo-blocking Regulation applies not only to classic online shops, but also to marketplaces. In addition, it applies not only to online trading, but also to stationary trading.
The Geo-blocking Regulation regulates the non-discriminatory supply of goods and services. However, the regulation does not apply to all areas. Financial services (banking services, credit transactions, securities transactions etc.), transport services, health services or gambling (Art. 2 para. 2) are explicitly excluded. Websites which only provide information and through which no products are sold are not subject to the Geo-blocking Regulation. However, problems may occur when product can be accessed and purchased directly from one website via another.
The prohibition of access restrictions, Art. 3
Art. 3 of the Geo-blocking Regulation can be described as the “heart” of the Regulation, as it directly regulates the prohibition of discriminatory access restrictions. It prohibits providers of goods and services from restricting customers’ access to their “online interfaces”. Every customer must, therefore, have access to online shops. “Online interfaces” refers not only to classic websites and online shops, but also to apps (Art. 2 No. 16).
Until now it has been common practice for many websites to prohibit users from certain countries access or they automatically redirected them to a corresponding version of the website without the customer having any influence over it (so-called re-routing). This is no longer permitted. Every user must be able to access a specific website.
An example: Previously, customers from France who wanted to access the German website www.shop.de were automatically redirected to the French version www.shop.fr. Now it must be possible for French customers or anyone accessing the site via a French IP address to access the www.shop.de version as well.
A restriction based on the customer’s nationality, place of residence or place of business is no longer permitted. However, even after the Geo-blocking Regulation, it is not necessary for online shop operators to have a website version available for each EU member state. Furthermore, customers may only be addressed in certain languages. However, these websites must also be accessible to customers from other EU countries. This does not apply without exception. Initially, customers can be redirected to another version of the website, provided they are clearly informed and give their express consent. An implied action, i.e. simply surfing on a website, does not constitute consent. The customer must take an active action of consent, for example by clicking on a checkbox. On the other hand, it is permissible to store the consent given in the user account by means of a cookie or a corresponding setting, so that automatic forwarding is permissible with the next website call. On the other hand, Art. 2 para. also provides that each website version must remain easily accessible to the customer, regardless of the consent given. This means, for example, that customers can return to the original website version by using a clearly visible button. The consent to forwarding is also revocable in the future.
In addition, access may be restricted if this is necessary to meet legal requirements under Union law or the law of an EU member state (Art. 2 para. 3). This may be the case, for example, to meet the requirements for the protection of minors or in connection with products that are hazardous to health (fireworks, medicines, etc.). In such cases, however, the provider must clearly inform the customer of the reasons why access is restricted. The information must be provided in the language of the website version that the customer wanted to access.
No different purchase conditions, Art. 4
Furthermore, Art. 4 of the Geo-blocking Regulation prohibits the application of different “general terms and conditions” for access to goods and services on the grounds of nationality, residence or place of establishment of the customer. However, “General Terms and Conditions” do not mean the “General Terms and Conditions”, but more generally all terms and conditions of purchase, price, payment and delivery (Art. 2 No. 14). All customers should be able to use goods and services under the same conditions. This expressly does not apply if providers are prohibited by certain provisions of Union law or the law of an EU member state from offering goods or services to certain customers (Art. 4 para. 5).
An example: A customer from France must be able to buy products in an online shop under the same conditions as a customer from Germany.
The prohibition of different conditions applies on the one hand to the purchase of goods which are to be delivered to a certain place belonging to the supplier’s delivery area or which can be collected at a certain place (Art. 4 para. 1 lit. a). However, this does not mean that online merchants are now obliged to offer deliveries to all EU member states. If an online merchant from Germany only offers pickup and delivery within Germany, this is still permissible. Nevertheless, the provider must now also enable customers from France to purchase goods in his online shop and collect them themselves or have them shipped to an address in Germany. The customer can then take care of the further transport to France himself. If a supplier also offers deliveries to the Netherlands, the French customer must also be able to have the goods shipped to an address in the Netherlands. At this point, many online merchants might need to adapt.
Online merchants do not have to ship to all EU member states at uniform shipping prices. For example, it is still permissible for a German online retailer to charge € 9.99 for deliveries within Germany, € 12.99 for deliveries to the Netherlands and € 15.99 for deliveries to France. Though, a French customer must also be charged € 9.99 for purchased goods shipped to an address in Germany. Increased delivery prices for a French customer are now inadmissible. Dealers must offer uniform net prices (Art. 4 in conjunction with Art. 2 No. 14) although the gross prices may vary depending on the taxation model of the respective country of the customer. An exception is provided for different prices in Art. 4 para. for the sale of books. Due to the fixed book prices, which exist in some EU member states, it is still permissible to offer books in different EU countries at different prices, provided there is a legal obligation to do so.
No discrimination in means of payment, Art. 5
As a third essential regulation, Art. 5 prohibits differences in the treatment of customers in accepted payment methods based on their nationality, their place of residence or the place of their establishment. Now all online shopping customers must be offered, in principle the same payment methods, regardless of the country from which they access the website. In addition, customers from other countries may not be charged additional fees for the same payment methods or offered certain payment methods only up to a certain order amount.
For example, a German online shop operator who accepts payment by VISA credit card must now also accept payment by VISA credit card issued in France under the Geo-blocking Regulation. He may not charge any additional fees for this.
The prohibition of Art. 5 para. 1, however, only applies to payment transactions which take place via an electronic transaction by bank transfer, direct debit or a card-based payment instrument, which fulfil authentication requirements and are made in a currency accepted by the provider. This is usually the case for payments in euro. For example, if an online merchant offers payment by VISA credit card, it must make this payment method available to all customers. However, the merchant is not obliged to offer payments using a MASTERCARD credit card. Of course, online merchants do not have to offer all possible payment methods.
In addition, online merchants may also charge fees for the use of certain card-based payment methods (Art. 5 para. 3). According to the Geo-blocking Regulation, these fees must apply uniformly to all customers.
Credit and financing options granted to customers under certain circumstances need not be uniform, as they do not constitute electronic transactions. However, the Geo-blocking Regulation does cover purchases made on account, if payment is made, for example, by bank transfer. If an online merchant currently enables customers from Germany to purchase on account, he must now offer this to all customers. Also, the payment by PayPal is recorded.
Art. 5 para. 2 provides a right of retention for providers. If they have objective, non-discriminatory reasons, online merchants can withhold the delivery of goods or the provision of services until they have received confirmation that the payment process has been properly initiated. The aim is to reduce the risk of advance performance and non-payment.
Fines and warnings
Online merchants should take the requirements of the Geo-blocking Regulation seriously and implement them at short notice. The Regulation stipulates that the member states must adopt effective, proportionate and dissuasive measures applicable to violations of the Regulation (Art. 7 para. 2). Violations can be punished with fines of up to EUR 300,000.
In addition, the provisions of the Regulation undoubtedly constitute so-called market conduct rules within the meaning of § 3a UWG and can therefore be cautioned by the competent authorities. Unlike the Basic Data Protection Ordinance (DSGVO), this is also not controversial. Such warnings may result in considerable costs for affected traders under certain circumstances.
What should online shop operators do in the short term?
Online shop operators should check their online shops at short notice to see whether they offer all customers unrestricted access. In addition, automatic redirects (re-routing) should be deactivated and, if necessary, upstream pages should be integrated to obtain the consent needed to redirect website users. Care should be taken to ensure that website users are adequately and easily informed about the significance of their consent and that it is possible to revoke the consent through an integrated opt-out.
In addition, online shop operators should review their terms of purchase and payment modalities to ensure that all of the requirements are addressed and make appropriate adjustments where necessary. Merchants should ensure that there are no restrictions applied to certain countries in the ordering process when specifying the billing address. If the shipping address is specified restrictions on the delivery locations offered are, however, permissible.
Online shop operators should not regard the Geo-blocking Regulation as an additional hurdle, but as a new opportunity. Online sales are increasing by around 22% every year. The Regulation thus offers online shop operators the opportunity to open their products to new markets and generate additional revenue.
The author Felix Meurer is a graduate lawyer. He deals with the legal aspects of eCommerce and various social media topics, as well as data protection issues.